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Smart metering goes on land grab

The group is looking to expand its network of meters while the government is working to increase smart meter usage
March 14, 2018

When it comes to business strategy, Smart Metering Systems’ (SMS) can be summed up in two words: network growth. One of the primary drivers for the business is the UK government’s policy to offer all households and businesses a smart meter by 2020. As a group that installs and services such meters, it is looking to secure responsibility for as many of the 43m meters yet to be installed as possible.

IC TIP: Hold at 691p

The strategy is paying off. At the end of 2017 the group had more than 2m metering and data assets under management, an increase of 62 per cent on 2016. These generated £57m in recurring revenue. By the end of February 2018 the network had grown further and was generating £60.7m. This expansion comes at a cost, however, and the gross profit margin declined 4 per cent in the year to 51 per cent.

Still, there looks to be little chance of a change in direction, at least in the short term. In November, the group refinanced, extending its £280m revolving credit facility and raising £150m through a share issue. Net debt is down dramatically as a result and the group has access to cash and undrawn facilities of £244m, up from £55.8m in 2016.

Bloomberg consensus forecasts give the expected 2018 EPS as 22.6p (from 19.9p in 2017).

SMART METERING SYSTEMS (SMS) 
ORD PRICE:691pMARKET VALUE:£777m
TOUCH:689-691p12-MONTH HIGH:900pLOW: 456p
DIVIDEND YIELD:0.8%PE RATIO:43
NET ASSET VALUE:202pNET DEBT:16%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201327.97.47.92.31
201442.411.010.52.82
201553.917.517.53.30
201667.218.217.34.10
201779.618.016.25.20
% change+18-1-7+27
Ex-div:26 Apr   
Payment:31 May